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Tuesday, September 22, 2009

Our timing seems to be wrong

Our timing also seems to be wrongSo far I have ignored timing differences. It is tempting to think that the developed countries remain developed countries and that developing countries remain developing countries. But, things change. While people generally bemoan the disparity of wealth between nations wealth does migrate. As rich nations expect better standards of living and higher wages then production moves to developing countries where labour is cheaper but productivity is reasonable. As a function of income the health, wealth and education of the developing nation increases and so does the quality of life. As skills, education and expectations increase then so do wages and production moves progressively to the next cab on the rank.Technology disperses in a similar way. The initial benefits of technology fall to those who are educated and skilled enough to develop them and who can afford to pay. As more people become educated and skilled technology develops over a more dispersed area. More people can afford the technology and so it disperses faster.Eventually, without any other influences, labour, wealth and technology will equalise across the world and relative wealth will be entirely down to the resources that a nation controls and can protect. This will, however, take many generations yet, plus there are other influences at work (such as protectionist political policies, ‘diplomacy’ and war). In the meantime, a nation can benefit from this timing difference.Very rich countries such as the USA and the UK have been able to leverage these timing differences very effectively. The huge financial surpluses built by these two nations have allowed them to dominate global financial systems. Most other Western European countries have also had a share of this to some extent. They have had initial advantages in technology too. With the concentration of wealth and education comes concentration of technological development. Gradually this spreads out across the world. Since the Industrial Revolution it has already spread from England to Western Europe to the US and North America to Japan and increasingly South-East Asia. There can be significant advantages to utilising the early adopter opportunity.Arguably New Zealand had the opportunity to use economic surpluses to leverage a bigger economy but New Zealand never seemed to take advantage of its wealth; neither does Australia for that matter (despite its natural resources). New Zealand was very wealthy in the 1950s. Admittedly this was driven by primary produce (with little value add) but then again the wealth was spread across a fairly small population. Perhaps it was the size of the population and the therefore small absolute volume of wealth in world terms that made it difficult for New Zealand to capitalise on its surpluses, but our economy never diversified or expanded to any significant degree.Technology has played a greater role with our primary produce now including significant value-add. New Zealanders also tend to be early adopters of technology but this seems to be concentrated around consumer goods. By comparison our take up of automation seems to be poor with most people working harder to achieve performance well below other developed economies.